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Lloyd's of London, the world's biggest insurance underwriting "market", was granted a licence to set up its first operation on the Chinese mainland, gaining a strategic foothold in one of the world's fastest-growing insurance markets.

The agreement, signed in London on Wednesday, entitled the insurance market to set up an onshore business offering reinsurance in local currency.

Lloyd's chairman Peter Levene said China had the potential to become as valuable as the United States, where it does US$9 billion worth of business per year.

"I will be surprised if we make any significant money there for four or five years," he told reporters.

"But in 10, 15, 20 years, whoever will be running Lloyd's will talk about China as one of our biggest markets."

The Chinese had been eager to invite Lloyd's in, but its status as a market rather than a company had meant complex negotiations over the past seven years.

Lloyd's would establish a subsidiary in China to finally overcome the problem and it joins the world's two biggest reinsurance companies, Swiss Re and Munich Re, who recently received licences to operate in China.